Credit card use by students is focus of new study

By Jeremy M. Simon

Students at institutions of higher education apparently like credit cards. A new study indicates that more than half of college students have at least one credit card that is billed to them, with about a quarter of those students having used their credit cards to pay school tuition.  

Overall, greater than four in ten student credit card holders carried a balance from month to month, with a median balance of $1,000, according to an American Council on Education analysis of 2003-2004 federal data released earlier this week. Additionally, the study reported that 55 percent of students who used their cards to pay tuition had a revolving balance, versus 38 percent who had not charged tuition. Still, the data did not suggest the degree to which tuition charges are the reason students carry credit-card balances.

Many schools, especially state institutions and community colleges, allow students or parents to pay tuition bills with credit cards for convenience. Conversely, other schools refuse to permit paying by credit card, as they worry it could encourage students to borrow in more expensive ways. (Student loans and installment plans general charge lower interest.) Some institutions say the fees charged by credit card issuers to process the payments aren't worth it, considering the biggest winners are usually parents just hoping to inflate their benefits from a rewards credit card.

Not surprisingly, upperclassmen tended to have more debt. The ACE study showed that, among student cardholders, 48 percent carried a balance by their fourth or fifth year in college, while 37 percent of freshmen did so. The data showed little difference in whether a student might be a cardholder based on family income. About 58 percent of students from families earnings $80,000 or more had their own credit card, compared with 54 percent of students from families earnings less than $40,000. 

However, the difference in whether the students of various backgrounds had credit card debt was more pronounced. Just a third of students from the wealthiest families carried a credit card balance, while almost half of student from the poorest families had a revolving balance.

Published: June 10, 2006

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